The purpose of The New Managerial Economics is to show you that knowledge of economic theories and concept is useful in managerial decision making. One of the fundamental issues facing managers is judging the performance of a company. While there are many popular alternatives for measuring performance (return on assets, return on equity, and so on), economic profit is a fundamental component of the economist's bag of tools. This is how economists measure the value added of a company and the success of its management team.

Economic profit represents company profits after accounting for all costs. Costs include all explicit or accounting costs incurred in the production of a good or service plus the opportunity cost of capital, an implicit cost. This is referred to as normal profit. All resources must be paid their opportunity cost if they are to stay in their current use. This includes the capital that has been invested in the company. The cost of capital is not that easy to calculate, but concepts like the Capital Asset Pricing Model have been developed to do so. Economic profit is closely related to shareholder value. In fact, a stock's price is equal to the discounted value of future economic profits using the cost of capital as the discount rate. By focusing on economic profit, managers are better able to effectively manage company resources.